Oil or Wheat as Money????
Why wouldn’t oil or wheat or land or bonds work as money?
To understand why, think of simpler example: manufacturers money-off coupons. To anyone buying the product, the coupon is worth its face value. So why don’t coupons circulate as a kind of currency.
Let’s say you were planning on buying Charmin bath tissue today. Someone has a coupon for $1.00 off Charmin. It is worth nothing to him, because he isn’t buying the product. In theory, it “should” be worth $1.00 to you. But how much cash would you pay someone for that coupon?
Far less than $1.00.
With coupons, as with all non-monetary goods, the bid-ask spread is too wide for them to work as money.
Interesting illustration with the coupon. But isn’t the main reason things like oil and wheat can’t be money, is that they would only work in a barter system? Person A has oil and wants wheat. Person B has wheat but does not want any oil. Therefore they need money before a transaction can be made. Are you saying this situation would be a wide bid-ask spread?
Samiam: that’s it. Person B does not want oil. He may bid on oil, but it will be a low bid.